The 1% Solution Saving Baltimore City by cutting its property tax rate Stephen J.K. Walters, Ph.D. Loyola College in Maryland Steve H. Hanke, Ph.D. The Johns Hopkins University

Recapitalization  Repopulation  Rejuvenation  We think of cities as dense concentrations of people  In truth, they are dense concentrations of capital, which attracts us because abundant physical capital makes us more productive (and prosperous) in our work and more comfortable in our leisure  Cities that are capital-friendly will attract people and have healthy economies; cities that repel capital will decay... and die

Baltimore’s uneven recapitalization  To attract investors, we rely on subsidies and tax breaks on a limited scale  Their effects are similarly limited, leaving vast areas starved for capital  The question: If we understand that special subsidies and tax breaks are a good idea and necessary to attract investment, why isn’t general tax relief seen as a great idea?

Making San Francisco capital-friendly: A 57% cut in the property tax rate

In Baltimore: A half century of “capital punishment”

The “ruinous effects” of Prop 13: S.F.’s recovery of property tax revenue

Not-so-ruinous effects: The “fiscal dividend” in S.F.

What if we used “The 1% Solution” in Baltimore?  Note first: We tax “personal property” at 2.5 times the rate we tax “real property” Accordingly, a 1% real property tax rate SHOULD  2.5% personal property tax rate This would make us more receptive than the County for residential and business investment  The FY2009 budget cost of such rates: $380,912,050 (or 13% of total ’09 budget)

“Affording” rejuvenation: Five strategies 1. Cuts in operating budget (or revenue enhancements from elimination of unnecessary special subsidies) 2. Asset sales (including now-worthless abandoned property) 3. Lower tax rate on structures, higher on land 4. Debt financing 5. Cash on Delivery: Announce in year t that permanent cuts will be put in place in year t+3

The “Cash on Delivery” Plan  Binding legislation that delivers a 1% tax rate at a date certain in 3 years  Allows for 1 complete re- assessment cycle  Limit spending growth in interim  Bank increases in property, transfer, and other taxes  Deficit (largely) closed before it occurs